Paychex makes money primarily through payroll processing which includes paper and electronic distribution of employee compensation. Businesses save time and resources by outsourcing their payroll processing needs to companies like Paychex and its primary competitor ADP. The payroll processing business constitutes 75% of the $29.96 Trefis price estimate for Paychex.
Unlike ADP, nearly all of Paychex’s payroll processing clients are small businesses (<50 employees). In the current economic environment, job losses within small businesses have been high, meaning that the, Average Employees per Payroll Client for Paychex, is expected to decline. This has, and will continue to translate to lower payroll processing revenues from existing clients. Furthermore, bankruptcy risk is higher amongst small businesses, meaning that the overall Number of Payroll Clients for Paychex, is also likely to decline during periods of economic distress.
Within the Payroll Processing segment of Paychex‘s content on our platform, you can see how the Number of Payroll Clients and Average Employees per Payroll Client impacts Paychex’s stock price.
